When in 2011 an increased nickel supply pipeline emerged and slower economic growth weakened demand for stainless steel, which accounts for about 65 per cent of the total consumption of the metal, the industry saw a significant nickel production surplus. Due to the glut, the metal has recently been amongst the weakest performers in the commodities industry, retreating 11 per cent to $16,682 per tonne on the London Metal Exchange (LME) this year.
Notwithstanding its tag of ‘the year’s worst-performing metal’, nickel prices rallied 5.5 per cent in the past month, as analysts are now paring supply forecasts due to a number of projects falling behind schedule, Bloomberg reported on 26 November 2012.
Nickel Supply Glut Fears Receding on Project Delays
In the middle of October this year, Standard Bank reduced its estimate for the nickel surplus by 17 per cent, citing project delays. Analyst at the investment bank in London, Leon Westgate, said: “There are a number of operations and significant amount of capacity that may run into various issues. In terms of that producer wall of nickel, it may not be quite as large or impregnable as it looks on paper.”
According to Standard Bank, as well as PNB Paribas’ forecast announced earlier this month, nickel production will almost match demand next year. Refined-metal production is set to expand 4.9 per cent to 1.75 million tons next year, as demand increases 6 per cent to 1.72 million tons, Standard Bank estimates. This projected surplus of 35,000 tons is 27 per cent lower than this year’s supply glut, while the bank’s forecast of 5.8 per cent gain in mine production in 2013 would be the smallest advance since 2009.
In the past two months, Citigroup Inc and Credit Suisse Group AG also lowered their nickel supply glut forecasts. Currently, Citigroup expects a 22,300 ton supply shortfall, while Credit Suisse sees a glut of 31,000 tons. Meanwhile, Macquarie Group Ltd. anticipates that as much as 93,500 tons of production may be disrupted in 2013, compared to 9,000 tons this year. Standard Bank’s forecast, however, shows that in the next 12 to 18 months, over 800,000 tons of planned or existing output capacity is under threat of disruption.
In line with analysts’ projections, some nickel producers have already reported either reduction of their operations or expectations of output decline. In July, Brazil-based metals and mining company Vale (NYSE:VALE), said it would miss its 2012 nickel production targets after accidents halted nickel projects in Brazil and New Caledonia. In a further sign of declining supply, last month, Vale, which is also the world’s second-largest nickel producer, announced that it would suspend operations at its Frood nickel and copper mine in Canada. Before the Brazilian company, Xstrata (LON:XTA), the fourth-largest nickel producer, also said that it will shut its Cosmos nickel mine in Western Australia. Meanwhile, production at London-based Anglo American’s (LON:AAL) Barro Alto project in Brazil will be impacted after a kiln wall collapsed in October, and production at its Loma de Niquel mine in Venezuela was stopped in September.
“Hard to Get Excited About Nickel” with Pig Iron Production Surge
Despite the general analysts’ expectation of a smaller supply glut and rally in nickel prices, Jim Lennon, an analyst at Macquarie in London, does not view the current industry signs as promising. He said: “It’s hard to get excited about nickel. There is very little reason to think the price can rally from where we are today, especially given the likely surge in nickel-pig-iron (NPI) production over the next three to six months.” According to Mr Lennon, NPI output may be curtailed by curbs to nickel-ore exports from Indonesia, where the government is trying to spur the development of the domestic refining industry.